A Payable on Death Account, or POD account, is a financial tool that is commonly used to keep monetary assets out of the probate system. It is usually set up when the bank account holder gives the bank directions to transfer the funds to another person upon the death of the account owner.
While the account holder is still alive, they will still be able to access the bank account even if a POD arrangement has been set up. The recipient of the funds will simply receive whatever funds were left in the account at the time of the account owner’s death. Payable on death accounts may be called by different names, which include:
- Informal trusts;
- Revocable bank account trusts;
- Tentative trusts; or
- ITF accounts (“in trust for” accounts).
Other financial mechanisms such as Totten trusts are sometimes considered payable on death accounts.
Before you set one up, it can be very helpful to learn some of the pros and cons of POD accounts. Some of the pros of such accounts generally include:
- Ease of Creation: Generally all you need to do to set up a POD account is to inform the bank that you’d like to make your account payable to a specific person upon your death. In addition, it’s usually free to do this. POD accounts also help avoid the costs of probate (the process of property distribution upon the person’s death).
- No Monetary Limitations or Restrictions: There are usually no limits on the amount of money that you can transfer to a beneficiary through a payable on death account.
- Easy to Claim the Money: The recipient of the funds only needs to present the bank with a proof of ID and a death certificate copy to claim the money.
- Multiple Beneficiaries: While you are still alive, you may name as many beneficiaries of your POD account as you would like. The proceeds may be split evenly between all the named beneficiaries, or divided in any manner you prefer. You may also change the beneficiary or beneficiaries of your POD account at any time you like.
While POD accounts have their advantages, they may also be associated with some negative points. Some of the cons and drawbacks associated with a POD account include:
- No Alternate Beneficiaries: You will generally not be able to name an alternate beneficiary for your POD account. This means that if the named beneficiary passes away before you do, your account funds will be distributed to your estate, thus passing through probate proceedings. However, as mentioned above, it is possible (and sometimes advisable) to name multiple beneficiaries for your POD accounts.
- Your POD accounts will only pass through the probate process in the event that all of your named beneficiaries pass away before you.
- No Rights for the Beneficiary: While you are still alive, the beneficiary won’t have any rights to claim the account funds. They can only claim the account funds upon your death. This can create a delay if you happen to change your mind and you want the beneficiary to receive money immediately.
These pros and cons may depend on your purposes and intents regarding the funds. What might be considered a drawback for one person might actually be an advantage for another person’s situation. It all depends on what is needed for the beneficiary and what your goals and aims are regarding the payable on death account funds. You may need to consult with a lawyer for more guidance on how a POD account can help your situation according to your needs.
If a payable on death account seems unsuitable for your needs, then you may have some other options for transferring your account funds. For example, you can transfer the money to a beneficiary through a will document, which is actually the standard route for most inheritance preferences. Or, it may be possible for you to create a revocable living trust, which is very similar to a POD account.
Like a POD, both a will and a trust can help you avoid having your money pass through probate. Also, wills and trusts usually allow the person more flexibility than POD accounts (such as naming alternate beneficiaries). On the other hand, there may be more complex requirements in order for a will or trust to be valid. In comparison, POD’s are usually much simpler to create.
If you need assistance with a payable on death account or other type of accounts, it’s to your advantage to hire a wills, trusts, and estates lawyer in your area. Your attorney near you can advise you on your estate planning options, including wills and trusts. In the event of a legal dispute or conflict over your assets, your lawyer can help defend your interests in court during a lawsuit.